As late spring rolls around each year, the real estate market experiences a surge in activity. Buyers are motivated to find new homes before the approaching fall, while sellers aim to leverage the ensuing competition. This spring season was no exception, with April and May witnessing steady gains in home sales. However, the market dynamics were unique, with a significantly reduced supply of active listings compared to pre-pandemic levels. In this blog post, we will explore how the spring market compared to previous years and delve into the reasons behind the current trends.
Diminished Supply and Strong Home Prices
One of the key observations in the spring real estate market was the scarcity of available listings. The supply of active listings was just over half of what it was before the pandemic hit. Consequently, new pending and closed sales also remained well below historic levels. However, despite the limited inventory, home prices managed to remain strong.
Buyer Interest and Reluctant Sellers
Despite rising mortgage rates and home prices, buyer interest remained evident throughout the spring season. Weekly showings consistently matched or exceeded pre-pandemic levels, indicating sustained buyer demand. In fact, listings that went under contract in April received an average of 3.5 offers, with more than half closing at prices higher than their initial asking price.
On the other hand, current homeowners were not quick to enter the market. Many homeowners had secured exceptionally low mortgage rates during the pandemic and were not enticed to purchase a new home at significantly higher rates. Additionally, some homeowners chose to hold onto their properties and opt for renting instead, capitalizing on their accumulated equity.
Implications for the Remainder of 2023
Looking ahead, the real estate market is expected to continue grappling with low supply throughout the remainder of 2023. The presence of numerous buyers who have not been deterred by high interest rates will ensure ongoing competitiveness in the market. With such limited inventory, economists do not anticipate significant price declines within the coming year.
Furthermore, buyers should not expect substantial relief in interest rates. Mortgage rates are likely to hover around the 6 to 6.5% range as the Federal Reserve continues its battle against inflation. Ultimately, the long-term solution to address the current market challenges will be to bolster the supply of homes by building more properties.
Encouraging Signs: New Home Sales and Increased Construction
Amidst the challenges, there is positive news to be found. New home sales have rebounded to pre-pandemic levels, indicating a resurgence in construction activity. In particular, apartment construction has reached its highest levels in 40 to 50 years. While it will take time, this upward trend in construction suggests that more affordable housing options are on the horizon.
The spring real estate market of this year exhibited unique characteristics compared to previous years. With a constrained supply of listings, diminished sales activity, and strong home prices, buyers faced significant challenges. However, sustained buyer interest and increased construction activity provide hope for the future. As we progress through the rest of 2023, the market is likely to maintain its competitiveness, prompting the need for additional housing supply to meet demand.
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